Daily Brief Macro: Xi Shifts Policy More Forcefully After Party Congress and more

In today’s briefing:

Xi Shifts Policy More Forcefully After Party Congress
Malaysia’s 15th General Election: Political Divisions Reflect Societal Polarization
UK Costs Pushing More Inflation

Xi Shifts Policy More Forcefully After Party Congress

President Xi Jinping appears willing to make important changes now that he has consolidated his power at the Chinese Communist Party’s 20th Congress
Substantial policy shifts have been announced in recent weeks in several areas – pandemic management, real estate support, migrant workers and foreign policy. Expect further shifts in 2023
We do not see a major push on liberalizing economic reforms, but Xi will be aiming to boost China’s economic resilience to withstand potential American hostility.

The latest federal parliamentary elections have produced a hung parliament. Intense negotiations are underway to form the next coalition government
Perikatan Nasional’s heavily ethno-nationalist campaign worked, making it the biggest winner in the election. It is now positioned as a major player in national politics.
Malaysia’s political system is more polarized along ethnic, religious, and socio-economic lines. Questions will be asked whether the social fabric can withstand such fissures.

Inflation surprises continue to skew higher as prices remain far below where firms would like them. Additional cost shocks have prevented the gap from closing at all yet.
Government policy encourages second-round effects that raise the equilibrium price and cost-push inflation towards it over the next 18 months.
This macro story raises inflationary trends in our forecast to be almost 2pp above the consensus. That is less than the 4pp gap in March but could still rise again.

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